'Prenuptials' for offshoring

23.01.2006

For instance, a deal can include provisions that if the outsourcer fails to meet specific service metrics, there will be financial penalties against it or "credits" that the customer can use to purchase other services from the outsourcer, says Nuara. That way, if it's an extensive contract with multiple services being provided, the customer can opt to discontinue the underperforming service without stopping the whole contract, he explains.

If it's an application development agreement, the contract can include exit options across the course of the work being done, says Nuara. For example, if the customer is unhappy with how the provider has completed the development specifications, the contract could permit the customer to award only portions of the actual development work to the outsourcer.

"Don't write your contract like a restricted-access highway, where you can only get off the highway at the end," says Nuara. "There should be lots of exit opportunities along the way."

The arbitration option

Few U.S. outsourcing customers are willing to resolve contract disputes in international courts, because it's cheaper and more convenient to use U.S. courts. Besides, foreign courts can be even more bureaucratic than their U.S. counterparts. "You can raise a child by the time you can get issues resolved in Indian courts," says McKenzie.